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It Is Possible That Increased Firm Size Is Itself A Result Of Previous ...

It is possible that increased firm size is itself a result of previous acquisition activity and that previous acquisition activity is therefore a proxy for future acquisition activity.
Hence manager controlled banks and larger institutions tend to buy outside of their primary geographic-market locations. These may not yield cost reductions and hence consistent with agency theory than the managers are growing for their own gains and not for the benefit of the shareholders. This may explain why manager-controlled banks have lower returns than do owner-controlled banks (Glassman & Rhoades, 1979).
Manager-controlled banks are more likely to acquire out-of-market institutions than are owner-controlled banks.
The logic of agency applies to the behaviour of banking firms.
This research focused on the strategic decisions made rather than on financial results.
(Focarelli, Panetta & Salleo, 2002) ‘Expanding revenues from financial services is a strategic objective for mergers, whereas improving the quality of the loan portfolio of the passive bank is central for acquisitions. (see Nellis, McCaffery and Hutchinson, 2000). Strategies based on cost-cutting or economies of scale do not work in Europe in general given the rigidity of labour laws and the importance of local stakeholders.
NOTES
The paper by (Souder & Chakrabarti, 1984). The motives of executives for wanting an acquisition did not correlate with performance. The few significant correlations were found to be negative, e.g. increase profit was sort after but in fact decreased profit was the result. The motivation of obtaining new market strength were heavily inversely correlated with rate of sales growth and return on investment.
It appears management should be prepared for their acquisitions to have a negative impact on performance for some time. Two of the most highly rated acquisitions had negative performance for five years after being acquired.
The factor technological mismatch was strongly associated with poor performance. So was business unknown to the corporation. In two cases these two factors led to severely lowered employee morale and high employee turnover.
The unfortunate truth is that acquisitions are often driven by the parent firm's self-seeking motives, balance sheet needs, go-go growth desires or the personality of the acquiring firm's top executive.
The best approach was if the parent firm gently worked with the acquired division in a patient partnership model. Also if the long-range technological and strategic business fit with the acquiring firm is considered.
Four things can be done to increase post-acquisition success:
What benefits can their firm provide the acquired firm and how will this result in long-term synergies for both parties.

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